Absolute PPP can be seen as an extension of ________ by generalizing the price of a good to the countrywide level.

Question

Quizplus · Accepted Answer

Absolute PPP builds upon the Law of One Price, which states that in the absence of trade barriers, identical goods in different countries should have the same price when expressed in a common currency. Absolute PPP extends this to the country level, stating that the price levels of baskets of goods, when expressed in a common currency, should be equal across countries. Relative PPP, on the other hand, is concerned with changes in exchange rates over time and the corresponding adjustments in prices. Exchange rate equilibrium and equilibrium currency are not directly related to PPP.

Absolute PPP Can Be Seen as an Extension of ________